Luikmel noted that Russia's 2026 growth outlook has fallen fivefold compared to projections made three years ago. "Even Russia's central bank now expects growth to be between zero and one percent," he said, adding that the factors that once propelled the economy — wartime output and heavy budget injections — "have begun to run out."

A severe labor shortage and double‑digit interest rates are now the main brakes on growth. The Russian central bank has kept rates around 14 percent to fight inflation. This created what Luikmel called an "unfortunate contradiction": Russia is treating 6–7 percent inflation with a 14 percent interest rate. "This means that even after removing the effect of inflation, any investment made by companies in Russia would have to be roughly two and a half times more productive than the global average. Real interest rates around seven percent choke off investment," he said.

Despite weak fundamentals, Russia posted 1.3 percent growth in the second quarter, driven largely by wartime household income. Soldiers earn two to three times more than at home, and compensation for the killed or disabled can equal the price of a small apartment. "Domestic demand is being stimulated through war spending," Luikmel said. "This is not sustainable."

He described a distorted housing boom in poorer regions, where families use state payouts to buy two‑ and three‑room flats in cash. The long‑term effect, he warned, is declining ability to afford housing as the labor force shrinks.

Russia's long‑term growth potential has now fallen to 1.0–1.5 percent, far below global averages. "Russia will clearly lag behind global wealth growth, despite high oil revenues," Luikmel said.

Signs of strain are also visible in the state budget. War spending in the 2026 budget no longer grows significantly, and recent government bond auctions were weak. "Only a fifth of the issuance was subscribed, and just a tenth was actually sold," Luikmel said. Investors now demand 14–16 percent yields on long‑term Russian debt.

Russia has tried to plug its widening deficit by raising VAT and seeking new oil markets, but refining capacity is declining. "Russia is entering a debt‑growth spiral with very few exit conditions," Luikmel said.

Structural weaknesses are deepening. Russia's industrial sector remains narrow, constrained by sanctions and technology limits. China now supplies more than half of new cars sold in Russia, but Luikmel stressed that Beijing is interested in selling finished goods, not helping Russia catch up. Iran has also restricted some parallel imports of key components.

Political nervousness is rising. Luikmel pointed to the firing of a state development corporation economist who warned publicly that the situation was unsustainable. "Sensitivity to criticism is very strong," he said.

A new wave of mobilization, he warned, would further damage growth. Higher frontline wages draw men from poorer regions, while educated workers may flee abroad. "The brains that ensure growth will leave even earlier," Luikmel said. Mobilization would also hit the industrial middle class, driving wage‑based inflation and forcing the central bank to keep rates high.

Luikmel said sanctions remain effective but must be applied faster and more creatively. The recent fuel crisis in Russia showed new vulnerabilities. "We don't need to sanction only Russian‑origin oil products. A rapid restriction on Russian diesel imports via Europe would have been very powerful," he said.

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